The Barker review, released on Wednesday, said the UK needs to build up to 140,000 extra new homes a year if housing supply is to match demand.

At present, fewer homes are being built in Britain than at any time since the 1920s.

Although the UK population is only growing slowly, immigration, divorce and longer life expectancy mean that the number of households in the UK is growing apace.

In her report, Ms Barker said planning bodies needed to take greater account of "market signals" - such as prices, demand and affordability - when setting housing targets and allocating land.

Green light

The chancellor gave the green light to many of Barker's recommendations.

As a result, more public sector land will be released for house building and the contaminated land credit extended to cover more brownfield land ripe for re-development.

The chancellor signalled the introduction of Real Estate Investment Trusts (REITs), intended to encourage pension funds and insurance companies to channel more money into building new houses.

Regional bodies will also be set up to oversee housing and planning issues.

The Deputy Prime Minister, John Prescott, will consult on how the need for more houses is balanced with environmental concerns.

Likewise, Barker's proposal to impose "tax measures" on gains accrued by landowners from the sale of their land for residential purposes will be consulted upon.

"It must be in the interests of the whole country to see whether we can forge a shared approach that would safeguard our environment, lead to more affordable housing and at the same time keep interest rates as low as possible," the chancellor said.